a philosopher's sketchbook

The Cost of Kids — early-retirement edition

The word “children” has been drifting around my life frequently, and the question of how to pay for that childhood is an echo that quickly follows that word. This post aims to more accurately estimate the cost of raising a kid for the frugal folks out there, who plan to do their parenting in the land of financial independence. Other folks, like Mr. Money Mustache & The Frugalwoods / Root of Good have addressed this topic, but I haven’t found a critical look at the numbers. So, I’m writing one here.

The estimates you’ll find on sites like CNN or Huffington Post are derived from this USDA calculator. The calculator gives us a good start to create our own financial estimate for raising a kid, who we’ll call Kid A, but the calculator exaggerates the costs of child rearing for an early retiree in several areas. Below, you see the estimated annual cost for a “low-income” newborn in my neck of the woods, as well as a “wealthy” newborn. I’ve also included the estimate for a 15-year-old, to get a rough idea of how costs change as Kid A moves from nursing and naps to dating and math homework.

Overall Annual Estimated Costs -- Age <1

(Household Type = Two Parents, Income = Less Than $61,050, and Region = West)

Housing

Food

Transport

Clothing

Health
Care

Child Care
and Education

Other

Total

Your
Costs:

$4,650

$1,563

$1,613

$888

$763

$2,738

$713

$12,925

National
Costs:

$3,875

$1,513

$1,500

$838

$838

$2,750

$538

$11,850

Overall Annual Estimated Costs -- Age 15

(Household Type = Two Parents, Income = Less Than $61,050, and Region = West)

Housing

Food

Transport

Clothing

Health
Care

Child Care
and Education

Other

Total

Your
Costs:

$4,650

$2,850

$2,200

$1,025

$1,225

$1,238

$925

$14,113

National
Costs:

$3,875

$2,763

$2,088

$950

$1,350

$1,225

$750

$13,000

Overall Annual Estimated Costs -- Age <1

(Household Type = Two Parents, Income = Over $105,700, and Region = West)

Housing

Food

Transport

Clothing

Health
Care

Child Care
and Education

Other

Total

Your
Costs:

$11,050

$2,500

$3,363

$1,438

$1,213

$6,675

$2,438

$28,675

National
Costs:

$9,213

$2,475

$3,263

$1,375

$1,300

$6,875

$2,288

$26,788

Overall Annual Estimated Costs -- Age 15

(Household Type = Two Parents, Income = Over $105,700, and Region = West)

Housing

Food

Transport

Clothing

Health
Care

Child Care
and Education

Other

Total

Your
Costs:

$11,050

$4,175

$3,950

$1,763

$1,888

$8,388

$2,650

$33,863

National
Costs:

$9,213

$4,138

$3,863

$1,663

$2,025

$8,725

$2,500

$32,125

These tables show us the government’s best guesses at what it will cost to raise Kid A to age 18. Let’s see whether these estimates hold-up to closer scrutiny:

The government includes loan payments on housing and cars in these estimates. Most early retirees, my family included, plan to have no mortgage or car payments, which reduces the costs of housing and transportation to little more than maintenance and resources — e.g. fuel, heat, water, electricity, etc. Child care is also zero, since either parent is free to stop working and care for Kid A. What’s more, if a family already lives in a house that’s large enough to house the Kid, the cost of housing is effectively unchanged from when the parents were kid-free. The same can be said for transportation costs: in other words, it doesn’t cost more to house and transport Kid A. So, we can effectively ignore the additional housing and transportation costs, which reduces our range of per annum kid costs to this: $6662 – $18863.

That cuts our expected costs in half from the G-men’s estimate, regardless of whether we’re planning to send the Kid to private school or risk destroying Kid’s moral fiber in the public school system. We’re planning to gamble on public school, for those who care. Since we believe in the public school system, our expected education costs are certainly lower than if Kid A lived in the hypothetical “wealthy” world. Let’s assume A’s annual cost for “Child Care and Education” is $1238, so Parents A can hire the occasional baby sitter and pay for the fringe costs of public school. Kid A’s annual range is now: $6662 – $11713.

Clothing’s next — first, how on earth does a newborn’s wardrobe ever cost $888 – $1438? Are parents dressing their kids in Arcteryx and J. Crew exclusively? Whatever explanation the G-men have for those whacked numbers, Kid A will be swathed in the Second Hand’s finest until A’s capable of caring where clothes come from — and even after A gets fashion-conscious, maybe still. Hand-me-downs and thrift stores will ensure Kid A is decently clothed for much less than $900+ per year. I’m guessing we can get it below $400 without sending Kid A into the January blizzards naked and freezing. With clothes under control, Kid A’s annual cost is: $6262 – $10463.

The “Other” column includes personal items (such as hair cuts and hygiene items), entertainment, and reading materials. Before cutting anything, the range is $713 – $2650. I’ll admit Kid A needs hair cuts, toothpaste, floss, and soap. However, most of our books and movies come from the libraries, and A will indeed have toys that aren’t homemade, but I doubt A’s “Other” will average $2500 per year. Let’s assume we can reduce the costs by $1000 per year at the high-end and $200 at the low-end: $6062 – $9463.

Using Mint’s comparison tool, we can estimate what it will cost to feed Kid A. Parents A spend 50% of what other folks in our area to feed ourselves. Therefore, it’s safe to assume we’ll be able to feed Kid A for 50% of the G-men’s estimated food costs. Annual cost for Kid A: $5280.50 – $7375.5.

We’ll leave healthcare at it’s G-men estimate, since I don’t know how to estimate how many broken arms Kid A will suffer or braces needed. Regardless, we’ve reduced the annual cost of raising a kid from $6662 – $18863 to $5280.50 – $7375.5. We did this by cutting costs in areas that are either inapplicable to an early retiree, or finding ways to reduce the costs of services we still need to purchase, such as food, clothes, or education.

To raise Kid A to 18 on this modified budget, we’ll spend a total of $89768.50 – $125383.50. That’s a big pile of cash, so how do we pay for Kid A? We could save and invest a nest egg that pays for Kid A’s childhood. $100,000 will provide more than enough to fund these estimated costs. Using a tool like CFireSim or FireCalc, as well as the updated research on safe withdrawal rates, we see that we can withdraw 5-7% of a $100,000 fund to pay for Kid A, and still have enough left over for Kid A to attend college, buy a BMW, or put a down payment on a house. In short, Kid A will be well cared for, even if there will be some family photos showing A in thrifty second-hand clothes.

Of course, the finances of raising Kid A will change from family to family. Some folks will do it for more, some for less. My goal here is to show how we can reduce the costs of raising a kid, to arrive at a more realistic estimate of child-rearing costs, rather than ringing the alarm bells and crying that having kids costs too much.

What do you think? Are there parents out there who are doing this? Are my numbers nuts?